Salary sacrifice and the Budget cut to National Insurance

Salary sacrifice and the Budget cut to National Insurance

Posted by

Kevin Blackmore

April 2024

In January 2024, the rate of National Insurance dropped from 12% to 10%. A further reduction of 2% was announced by the Chancellor in the Spring Budget, seeing a 4% decrease in just three months.

But how do these fiscal events affect an employee benefit such as salary sacrifice?

Let’s just quickly recap how electric car salary sacrifice works.

You ‘sacrifice’ part of your gross salary for a fully expensed electric car (save electricity costs). The savings made by the reduction in tax and National Insurance contribute to making electric car salary sacrifice highly tax efficient – even if there is a small amount of benefit in kind tax to pay.

So the change in National Insurance affects the cost savings of salary sacrifice. But by how much?

The answer is very little.

For basic rate taxpayers, expect the savings to decrease by between £20 to £35 per month depending on salary and car chosen. In this example, a basic rate tax employee choosing a £30,000 car will see the National Insurance saving reduced by £21 a month.

Example

MG4 150kW SE EV Long Range 64kWh 5 door – P11d value – £29,985

Assumes salary sacrifice motor insurance premium included for a 40-year-old UK tax resident. Calculations subject to rounding.

However,  even after the salary sacrifice has been applied, it should be remembered that there are additional National Insurance savings of around £35 on the employee’s net salary, assuming a salary of £30,000 before the sacrifice, thanks to the reductions announced by the Chancellor, so there will still be an increase in take-home pay. And bear in mind that employees can earn up to £50,270 per year whilst paying the main rate of NIC so the recent reductions could be generating significant savings for employees.

What about higher rate taxpayers?

If your earnings exceed £50,270, you will see little, if any, alteration as the 2% National Insurance rate applied at this level does not change, meaning higher paid employees taking a salary sacrifice car may see no reduction in their savings at all but still benefit from the reduced NIC rate on their salary up to £50,270.

Overall, electric car salary sacrifice still remains good value

While changes to the National Insurance levels will affect monthly savings for basic rate taxpayers, the overall reduction to National Insurance levels should see net pay increase anyway.

In return, you as an employee receive a brand new and fully maintained electric car paid for via monthly payroll. There’s also no deposit required and no impact on your personal credit lines, making salary sacrifice a highly worthwhile benefit.


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